Academic journal article Journal of Business and Entrepreneurship

The Effect of External Social Resources on Firm Patent Performance: The Impact of Boards, Partnerships and Geographic Proximity

Academic journal article Journal of Business and Entrepreneurship

The Effect of External Social Resources on Firm Patent Performance: The Impact of Boards, Partnerships and Geographic Proximity

Article excerpt

ABSTRACT

We have a limited understanding innovation, specifically how research and development translates into patents. Prior research assumes that internal resources are preeminent, largely ignoring external factors. This paper reviews outside resources to assess their effect on firm innovation. Using a sample of firms at their initial public offering, it was found that partnerships with universities and firm geographic location improve innovative activity, while government grants and partnerships with large firms did not foster improved innovative activity. The Board of Directors has no significant main impact, but a negative interaction effect on innovative activity.

Key words: innovative activity, research and development, patents, external resources, board of directors, initial public offering (IPO).

INTRODUCTION

High technology entrepreneurial firms by definition, encounter environmental change as well as technological and market uncertainty (Kor 2003), and need continual innovation to improve their performance (Deeds, and DeCarolis, 2000). Innovation is a process that involves the creation of new technical ideas and the harnessing of new knowledge which requires human and financial resources (Somaya, Williamson and Zhang, 2007).

The focal research question is which external factors foster enhanced innovation? Innovation process research frequently focuses on elucidating the effects of research and development (R&D) intensity (Griliches, 1990; Hall and Ziedonis, 2001; Kim and Marschke, 2004). While R&D supports creation of new ideas, it is only one of the antecedents of innovation (Somaya, Williamson, & Zhang, 2007). For example, the background of the top management team and firm resources have been shown to affect innovation (Somaya, et al. 2007). Though some strategists using the resource-based view suggest the prominence of internal factors on innovation, this paper posits the view that external resources also play a significant role in innovation. Researchers accept the value of external social networks where these social networks with outsiders indicate the value of external knowledge (Collins and Clark, 2003). The purpose of this paper is to identify the external factors that influence innovation and correspondingly, contribute to research by exploring these factors.

The external resources investigated are partnership with universities, institutes, other research organizations and large established firms, grants from governmental agencies, board of director's' (BOD) industry backgrounds, and the firm's location in a geographic cluster. Even though the BOD could be considered internal to the organization, they are not part of the day-to-day firm operations and accordingly, are viewed in this paper as external to the firm. Clearly, outside directors are external. The interaction effect of the BOD members' industry background on external resources as they affect innovation will also be examined. In the following section, a literature review on resources and the value of outside sources is developed; this is followed by the hypothesis development. The methodology and variables measurement is subsequently detailed. The paper then provides a description of the data analysis, results and a discussion of findings and concludes with implications, limitations and future research directions.

THEORETICAL DEVELOPMENT

The Resources of a Firm and the Value of External Resources

According to Barney and Arikan (2002 p. 138), "A resource is defined as tangible and intangible assets that firms use to conceive of and implement their strategies". The resource-based view of the firm assumes that firms manipulate multiple internal and external resources that affect their performance (Barney, 1991; Barney and Arikan, 2002). Antecedents of firm performance include manipulation of resources to create innovations. Prior research has examined the effect of firm internal (Somaya et al. …

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